Iemma tells ICAC of relationship between Obeid, Macdonald

Former New South Wales premier Morris Iemma has told a corruption inquiry the strong relationship between former Labor ministers Ian Macdonald and Eddie Obeid was well known in caucus.

Mr Iemma was giving evidence at an Independent Commission Against Corruption (ICAC) inquiry into allegations related to the issue of mining licences around 2007 and 2008.

The inquiry has heard Mr Obeid's associates may have profited to the tune of hundreds of millions of dollars from decisions made by Mr Macdonald, the former mining minister, and that Mr Obeid may have had access to leaked information.

Mr Iemma said it was well known in the caucus that the two MPs worked well together.

He said Mr Obeid once tried to have Frank Sartor dumped from the planning portfolio and suggested Mr Macdonald would be more suitable because he would be better at "dealing with stakeholders".

Mr Iemma said Mr Macdonald should have raised the issue of opening up 11 new mining areas in New South Wales with cabinet, and it was a major departure from policy not to do so.

The inquiry heard that Mr Macdonald set up special rules that prevented some big companies from applying for the licences.

Mr Iemma said it was "embarrassing" that big companies such as BHP were encouraged to invest in certain projects but were prevented from submitting tenders.

The former premier has also been questioned about party infighting and what counsel-assisting Geoffrey Watson referred to as the "painful memory" of his electricity privatisation scheme.

He said he knew Mr Obeid's family had bought land in the Bylong Valley area of New South Wales, which was later opened up for coal exploration by Mr Macdonald.

Outside the hearing Mr Iemma said abuse of power by factional chieftains was to blame for Labor's huge loss in the 2011 state election.

"In many respects a lot of the reforms that have happened since internally have been with a view to ensuring that doesn't happen [again]," he said.

"We've made some important steps. There's quite a few more steps to be undertaken, but a start has been made."